Pay inequality is a fact of life. A manager gets paid more than her subordinates, her manager gets paid more than her, and her manager’s boss gets paid even more. Everyone wonders how much their manager makes, and we are equally keen to learn about the difference in pay with our co-workers. In this episode, we look at recent research done regarding the impact of knowing the difference in pay of our peers and managers (and how much it impacts our quality and volume of work).
Do people work harder when they learn that their boss makes more than they expected? And does it have an opposite effect when we learn about peers who make more than we thought? What should this data tell us about how much transparency companies should strive for with pay? Would Ian work so hard on this podcast if he thought Frank was making more for significantly less work?
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Is It Motivating Or Demotivating To Learn Others’ Salaries?
We’re going to talk about what companies can do, how motivating or demotivating it is when people within your company know what everyone else has making, what the managers are making, and what the bosses are making. We’re going to dive into all of that. There are different ways that we want to look at this. The best way to start about it, Frankie, is there’s an experiment run a couple of years ago and published in the Harvard Business Review. This experiment was run by Zoe Cullen and Ricardo Perez-Truglia.
They conducted an experiment on the motivation behind employees’ work when they know or don’t know about the salaries and the pay of their peers and managers. They took a sample of 2,600 employees. They used a large commercial bank. Through an online survey, they had employees guess the salaries of their managers. The first part that was interesting is the vast majority of respondents completely missed the mark by a wide margin.
They most dramatically underestimated their manager’s salary. Half of the respondents they told, so they’d be like, “Good guess, here’s what your boss actually makes.” Obviously, in the majority of these, the salary was much higher than they initially thought. While the other half guessed and weren’t told anything about their boss’ pay.
The first thing I’m going to say about this study, in general, isn’t surprising that this was a bank and these employees were so off from knowing their manager’s salary. Banks are backward ass companies, and they’re very hierarchical. You’re on a need-to-know basis at your bandwidth. Banks, in general, have so many layers of managers that don’t get paid a lot. The only satisfaction they get from working in those companies is power, and knowledge is power. We’re not going to share with you certain things.
I’ve always been very transparent on what people can make within a company. They measured the behavior of these groups and what they found was our estimates suggest that discovering the boss’s salary is 10% higher than originally thought caused employees to spend 1.5% more hours in the office, send 1.3% more emails, and sell 1.1% more.
What they also found is the bigger the surprise, the larger the impact on how hard they worked. Finding out the boss earned 50% more than they thought led to an effect that was five times larger. For a salesperson, you’re talking about 6% more in sales and close to 10% more hours you put in if the boss made a lot more than you initially thought they did. I’ll stop there and ask what your initial take is on hearing about the results of this study.
We’re going to get to the other part of this, which I think is interesting. There’s a motivator and a demotivator. The motivator is the boss. If the boss makes more than you, as long as you don’t work for dipshit, as long as you work for someone that you think is a good boss, that person should make more than you. What the study bears out that we’ll get to is it can become something that you lean into and want to chase.
The other side of the equation is peers. Sometimes, we put peers on a pedestal, but there are times when we don’t put peers on a pedestal. Like, “That guy is not as smart as me. He doesn’t work as hard and does these things that I do. Why is that person doing better than me?” There are both sides. There’s the carrot and the stick of salaries. It matters what you’re looking at.Bank managers don't get paid a lot. The only satisfaction a bank manager gets from working in a bank is power. Click To Tweet
The way I see this first piece of knowing the managers. There has to be a large percentage of those 2,060 employees who think their boss is a dip. In general, if you’re in a bank, the odds of you having a dip boss are pretty high. There have to be a ton of those employees that think they have a bad boss.
I think you’re very much underweighting the fact that how much of a dip you are if you work in the bank in the first place.
That’s true. Maybe you aspire to be a greater dip.
Have you been to a bank in the last few decades?
I have. You and I have made it clear how much we hate banks. In general, there’s a high percentage of people that don’t respect their boss in this survey. Even if you don’t respect your boss, when you find out how much they made, you work harder and sell more, especially if you know they were paid a lot. This part of the component is all about aspirations. This is all about like, “Where am I going in this company? I want my boss’ job.” If I think my boss is paid a lot, I’m like, “I could do it better than him. I’m going to work my ass off and try to supplant my boss because the prize is worth the effort.” If I found that my manager’s salary was a hair above mine, why would I aspire to that job? I’ll keep doing my job and stay under the radar. This is all driven out by aspiration.
Let’s lean into the boss side, and we’ll transition to the employee side later. Let’s talk about it from this perspective. As an example, when I was in college, I lived in Florida and went to the University of Florida. I remember distinctly driving my U-Haul from Florida to Virginia and asking myself, “What the hell am I doing? Why am I leaving Florida?” People don’t leave Florida. People come to Florida. I was like, “What is wrong with me?”
I wasn’t the only person to ask myself that question. I got asked that a lot by other people, but there were two main reasons I left. One was I met the division manager that I was ultimately going to work for. I thought I could get that job in a reasonable amount of time, 5 to 10 years. I thought that as a 22-year-old kid, I wanted that job at 30 or 32 years old. I left, and that person made hundreds of thousands of dollars and had stock options. They had a nice house and things that I aspire towards. There was that side of it.
The other side of it was I met another one of my bosses who had a beautiful home they built and lived in at 27. I’m living in a shitty college apartment. From those two perspectives, I knew both those two people had things I didn’t have and they made more than I had. What I was chasing were those things. I, for one second, had no negative thoughts. I didn’t begrudge them any of their success because they were further along in the process to me. They were the trailblazers that I looked at and said, “If I do the right things, I can chase these same goals and have the same stuff.” That was big motivators more than dollar figures.
My first managers at GE out of college, I respected and liked them a lot. They were quite a bit older than me, but one of them became a friend of mine. I thought he was an incredible leader. It mattered to me that he made a lot more than me and was cool with it. He had a bigger job. I was some slap dick, a new kid out of college. I wasn’t hot shit when I first started, but he was who I reported to and the rung up that I was trying to get in the company. If we went out to Las Vegas, I’d be playing $10 blackjack hands, and he’d be playing on $100 hands.
That might sound trite and silly, but it mattered, like, “I want to be playing a $100 hands. I want his job and to move up in the organization.” To me, it was something to aspire to. The work I’m putting in, I’m working 100-hour weeks. It’s worth it because I’m going to be making a hell of a lot more money, and I’ll go one step further. I got promoted a couple of times and asked to fly out to Atlanta for a general manager position. This would be a huge job for me. I remember this, I went and met who would be my boss. He was an officer in the company. This was many years ago. Being an officer in GE was a big deal. It was like being knighted.
You hear about people becoming a partner in a big law firm. They’re tenured. They’ve made it. They’re gold. When you got to this level of officer at GE, you were set for life. One thing that I’ll never forget. I met him at his condo. It was a gorgeous condo in Buckhead. We had a cocktail at his house, and he’s like, “Let’s go to Capital Grill.” We took an elevator down to his parking garage and got into his Mercedes. It was a company Mercedes. He not only had one company Mercedes, but two company Mercedes. It wasn’t a piece of Mercedes. It wasn’t the little two-seater, S-class, or whatever.
It was a convertible $120,000 company ride. I was in a Ford Taurus. That was my company car. He got one and his wife got one. That was the way GE rolled back then. I remember getting into that car and him telling me, “This is a company car.” He didn’t ride commercial. He was in first class in everything he did. When I went out there, I wasn’t sure I wanted to move to Atlanta. I was thinking of staying because I’d have to leave Chicago. I was thinking about my stay. When I saw that, I was like, “This is who I’m going to reporting to,” which in the back of my head was, “You’re one step away from having a company Mercedes and a condo this nice in Buckhead.” It was a motivator and got me to take the job. It mattered to me.
We’re in a capitalistic society. There need to be upsides to being in a capitalistic society. You’re going to trade your soul in some ways, put in hours, and do those things. You must be chasing something. I’m married to someone who clearly is in the capitalistic system, but she’s a professor. What she chases is so different than what’s important to Ian or me. It is those motivators. If you’re someone who’s going to get on this conveyor belt, you’re chasing it. There are exit ramps you can take, but that’s the prize in a lot of instances, especially for young kids coming out of college who are broke. I’m eating ramen and stressed. You’re constantly stressed.
When you look at someone who has two Mercedes paid for by someone else, a kick-ass condo, all you think about is, “How little stress?” You aspire to have these things. Do you remember when you were a kid and you’re like, “When I make $70,000, it’s going to be great?” When you’d make $70,000, you’re like, “When I make $85,000, it’s going to be great.” When you make $85,000, you’re like, “When I hit $100,000, it’s going to be great.” You always have these things you aspire towards because you think it does something for you.
Knowing that it’s part of the process and what you’re working towards, it’s the reason why it’s captivating and why people constantly chase it. Michael Lewis tells awesome stories. He basically wrote all these books about, “These are the things you don’t want to do on Wall Street and the corruption, etc.” The question he gets most is, “How do I become a broker on Wall Street?” All the things he’s exposed to are seductive for young kids. This is the positive side of this survey. This is the chase and the thing that seeds the beginning of the conversation.
You mentioned you knew what all the NVR officers made. We knew what their stock was worth. You could do the math and how much stock options were worth at NVR. You might have a guess when they were given those jobs and be like, “The stock was $50 when he got that job. It’s $600 now. That’s how many millions.” You start doing the math. At first, it doesn’t make sense, but you start thinking about it and like, “I want more of those options.” That ultimately had a lot to do with me coming to NVR because I knew McCauley. He was in Cincinnati and had already been there a year. He’s like, “Ian, the stock has doubled since I’ve been here. Let me do the math on what my stock options are worth now.”If you found that your manager's salary was just a hair above yours, why would you even aspire to that job? Click To Tweet
GE stock had flat-lined two years before this. I was like, “That doesn’t make sense,” but what he was doing he was sharing with me how much he made in an executive role. They were talking to me about a role a little bit higher up, and even he was in. I was like, “There’s no way.” It did inspire me to know how much those bands were worth that I’d be going for. I’m not going to lie. It inspired me to know that my boss was worth a couple of hundred million dollars when I went to that company. That’s the founder of the company, but that 100% inspired me to know that he was set for 30 lifetimes. That motivated me to work harder.
There are two different kinds of people who read this. There’s the “I’m young and new. I want to move up.” There’s the young manager who wants to also move up, do different things, or create impact. Let’s talk about it from the first perspective. You’re young. There’s the carrot. If you understand the carrot and what you’re chasing, it can be an incredibly powerful thing.
I grew up with a granddad who loved the track. Every once in a while, the track would break and the dogs would catch the rabbit. What happens when a dog catches the rabbit? If you’ve never been to the tractor, it’s a little like a fake rabbit that they’re chasing. If that ever happens, those dogs are gone. They’re dead. They caught the rabbit and realized, “Holy shit, that thing I’ve been chasing my whole life doesn’t exist. You can’t use those dogs anymore.”
You have to have something in front of you. You must have something you can chase. You have to keep it fresh in your head to chase new things. Like Ian and I, what we chase is very different than what we chased two decades ago because we’re different guys and do different things. There’s that side of it. There’s the other side of it. If you want to build a great team and become a great manager, you need to know what to share, how to share it, and who to pick who to share it with.
Not everyone should see the inner sanctum and understand exactly how it works, but if you’re a skilled manager, you take the folks you want that showed that desire or the aptitude or the capabilities to grow. You show them a sniff of what the other side looks like. Ian’s boss could have taken his company car by himself to dinner. A dinner at Capitol Grill would have been impactful.
It would have been back then, but it’s not as impactful as “Come see my house and my car. Let me point out the fact that I don’t pay for this. Let’s now have a great steak and chop it up with some incredible wine.” That is how you plant the seed as a manager. It takes a lot of skill to do it properly to get those that work for you to understand it and to say, “This could be mine too if I do this right. “
I was also blown away. I was maybe 26 or 27 years old, Frankie, and at the peak of my drinking abilities. I was living in Chicago, got married, and had no kids. You can imagine how much I could put away back then. This dude drank me under the table and it was a power move. He had to have been 50 pounds lighter than me. He was probably 5’10,” 150, soaking wet. We had three martinis done before the food arrived. I remember thinking, “I’m going to fucking throw up in front.” He is trying to see if I can handle he’s got to have a hollow leg. I don’t understand this. It’s also very funny. The question is, if you’re a manager, how much do you share with people who are upwardly mobile about what the promotions pay?
I’m a believer that if you believe in your company and those positions pay well, they should know what the next job would be and the job above that should be. Why wouldn’t they want to aspire? They should know how much that is. The concern or the reason people might not do that is they might be bitter about someone who they don’t respect as a manager making that much money. If they’re bitter about that, they’re going to leave anyway. I don’t know if that changes anything.
A funny story, Dorado, a good friend of mine now, worked for me forever and always wanted to stay a loan officer. He never wanted to lead people or be a manager. I remember one time having to sit him down and be like, “Knucklehead, this is enough.” He had so much potential to be a sales manager, branch manager, or regional manager. He knew the sales manager was paid less. I’m like, “You are thinking so shortsighted. I want to punch you in the face. I’m so frustrated with you. You’ll be a loan officer the rest of your life.”
I was mad at him. He’s like, “A sales manager makes less, and there’s more risk. I’m going to keep shooting guns and closing deals.” I’m like, “Okay, do you think I make less than a loan officer?” He paused a little bit. I’m like, “How far away do you think you are from doing my job? How much more do you think I make than you? What did you make last year, Mikey?” He was like, “150,000,” and I’m like, “How much more do you think I make than you?”
It’s the same as this study. He was like, “I don’t know, 50% more.” I was like, “Higher, try again.” He’s like, “I don’t know, 75%.” I’m like, “Higher.” When he figured out I made multiples of what he made, it changed him. It was like, “I’ll take that sales manager job. It gets me one closer to getting to Ian where I can make seven figures in a year.” It was like, “Mike, you are thinking so effing shortsighted. I’m so frustrated with you.” I tell that story because this is what’s also important. When you and I were talking about this, you knew that Keith, as a DM, had some years where he made $600,000 or $700,000.
You come into a DM role in Charlottesville in a very different climate. It is not the peak of the housing market. Keith Neimann starts as a DM right at the beginning of an unreal run. You came in at the end of that run. When the company wasn’t giving out nearly as much stock as they used to division manager in a market where we were making the same margins, this job that you always put on the pedestal is paying $600,000 to $700,000 was paying $250,000.
There were a lot of risks. When you got your stock options was the peak of stock for the next eight years, so you weren’t going to make a dime on your stock options. Our bonuses were getting cut in half. The limits were there. What did that feel like when you had spent the first ten years of your career trying to get to this DM role? Now that you got it, it doesn’t pay anywhere near what it used to and what inspired you.
He only took 6.5 years, not 10. I realized where I was in the cycle, and it was an uptick. I remember sitting there and being told what a good deal it was and how impactful it was going to be. It was the first time that I started changing my goals. There are two things that happened. There was the presentation of what I was going to be paid. I got a $2,000 raise. They’re like, “We gave you a huge raise before. It comes with a different raise.” The bonus did change drastically. I remember I went from making $143,000 to $145,000 at the base. The bonus went from 60% to 100%, which was not an insignificant number.
It’s funny. When I met Niemann, I knew it was my course for the next decade. What I learned after that conversation is it’s time for me to start to recalibrate my goals. Within a week of all that happening, there was a lot less excitement about it than I was hoping for. It’s like you get there, and then now what? It was the opposite. There was a story I’ve told before, but I’ll tell it again quickly.
My boss and my boss’s boss we’re sitting at dinner and this incredible restaurant. The guy that owns the restaurant basically owned the entire town was sitting behind us. My boss’s boss said out loud and passing comedy. He goes, “I wish I wasn’t so risk averse.” The opposite happened when Ian went to dinner with the guy with the hollow leg, with the three martinis, and the two beautiful cars. Ian wanted to chase it. That was one of the first moments right aside, and I no longer want to chase this. I was the racehorse and caught the rabbit.If you want to become a great manager, you need to know what to share, how to share it, and who to share it with. Click To Tweet
I’m on the same front. You get into a DM role. It doesn’t pay anywhere near what the DM role paid years ago when you got excited about it. That’s deflating because this motivation you had of knowing your boss’s pay was motivating you to work all those hours like the study, and you get it. This is the other piece you left shortly after that because it wasn’t worth putting up with. What you had hoped for was not what it sounded like. I’ll go back to mine. I was way younger than the previous guy. I go and have my martinis. They gave me an offer and I’m excited.
Here’s where it all falls apart for me. They gave me an offer that was maybe 50% of what my previous boss, who was a region manager, was making. The guy was spending $100 chips. Now, the same thing. I’m at the end of the cycle. I came into that company in 1999. That was the height of Jack Welch. Everyone loves GE, and it is at its peak stock. I come in, and things are different. Our business had slowed a lot of GE. They were cutting people in a lot of the businesses.
What would have been an easy executive band role cut and even I remember they didn’t call me a manager. They called it a sales leader so they could pay you less. In every position I kept getting promoted into, I was noticing they weren’t paying what the previous managers got, not by any stretch. This is when it all fell apart. I felt like it was this Ponzi scheme.
You guys are hanging this fish hook out in front of me and saying, “It’s going to be better. Look how much these positions pay.” I get into them, you pull the rug out from under me, and they don’t pay what they used to pay, unlike Dorado, who ended up being a region manager, making a ton of money. At GE, I went from sales rep to sales manager, to region manager, to general manager. The GM pay was a little better than the sales rep’s pay. I was like, “This is insanity. I’m working insane hours. I had a lot of stock options, but I didn’t believe GE stock was going any farther. I was like, “I’ll keep it for a while the way this has going.”
I would say it’s good to tout what the next people in line make in the company, but understand that when you go through a recession and have to make some painful changes to what those positions make, it will backfire on you. If someone’s been chasing that aspiration, now you’re in a different market, and those positions don’t pay, they will be very deflated if you’ve set one expectation. It was very different, like Frank and the DM role didn’t pay by the time he got into it. Me and the GM role didn’t pay what it used to. Both of us left shortly after because it wasn’t worth the time and frustration.
It wasn’t worth what we set it up to be worth. The other thing that happened is this, and it’s probably going to pivot us to the second part of this episode. Our bosses became our peers. When you know what your peer makes, it infuriates you. Ian and I both had elevated to a point where these people that we looked up to did a lot of work, and we caught up. Maybe we didn’t catch them exactly, but we got to their level.
They were no longer these people that were 3 or 4 promotions away. They were people who are now our peers. We knew because they shared it with us. It was a double-edged sword. The other end of that sword is, “This is the one that excites you, but now it can be the one that cuts you.” Once you settle into that, that’s the second part of this study. It is a peer-to-peer salary review.
Frankie, for me, the other thing in your head when you said, “I have to recalibrate,” you didn’t recalibrate. Your goals were the same. You want to make X amount of money and buy some real estate of your own. You went and figured out how to go do it yourself. That’s what I did. For five years, I thought that the general manager of sales position at GE paid about $350,000 in salary and bonus because that’s what it did five years before at the peak when I started.
When they gave me the offer of $150,000 with all that and a bunch of stock options that I didn’t think would go anywhere, what did I do? I went to NVR, who paid me $350,000 in salary and bonus plus stock options that I believed were going to go up. For five years, I was like, “That’s what I’m going to make when I get to that GM role. When GE didn’t pay me, I didn’t recalibrate. I thought, “F-this, I’m going to go make that money somewhere else if you don’t pay it to me.”
The second part of this study is the opposite. They had employees try to guess what their peers were making, or at least say what some of their peers are making. In the experiment, they told exactly half of them. Here’s what your peers are making. The other half didn’t. The group that found out what their peers were making, and specifically when they found out their peers were getting paid more than they thought, had the opposite effect.
Finding out the peers earn on average 10% more than you initially thought caused employees to spend 9.4% fewer hours in the office, send 4% fewer emails and sell 7.3% less. That’s 10% more than what you had guessed. What this study found was, aspirationally, it’s very motivating to find out your manager makes a lot more than you. On the other side, if you find out your peers are making a bunch more than you thought they were making, which, to me, tells me more than you thought they were worth. Obviously, you would put a high number on someone who was good. If you found that out, it demotivated you and made you put a lot less work in.
When we got to the bigger roles, it changed our perceptions. When I said I had to recalibrate, I didn’t have to recalibrate. I didn’t change my goals. I changed how I was going to achieve my goals, and that’s what happened. I’ll tell a funny story about this. I told you before that I used to be very good friends with the people in HR because when I first got to NVR, they used to send me to campus. I knew everybody. I sat at their desks and worked on stuff when they’d left because I didn’t have an office in the corporate office.
I worked at one of the satellite offices. I remember there being things on their desks that shouldn’t have been there. I did it without even looking at other people’s salaries, their performance reviews, and all those things. What I noticed was I was paid more than almost all of them. I always felt good about it. It was a motivator. It always pushed me along, but when it changed, I became peers with people that used to be my bosses. It was a very demotivating thing.
I’ve gone through it a couple of times in my life with relationships or careers where you start thinking about the nuances. You start thinking about the dollars, the hours, and things you should be doing versus what you are doing. That becomes very unhealthy. If you end up in that unhealthy place, it’s probably time to ask yourself, “Should I be doing this or not? Maybe look for a change.” That’s real. Some of it’s perceived, and some of it’s real. What we want to talk about here is, as a manager, how do you use these things to help push, motivate, and drive? As an employee, when do you need to take stock and say, “This is what’s happening?
My question to you, Frank, is how much transparency is too much transparency when you talk about salary? We’re used to sports where everyone knows what everyone’s paid in pro sports. Sport is a little bit tough. You never heard about Ron Harper bitching that Michael Jordan made more than him, the backup shooting car to the Chicago Bulls because it was so dramatically clear that Jordan was better. Statistically, they won more with him on there. As long as you know someone is better than you or performing well, it doesn’t bother you as much if they make more.
I can summarize it right there if you want me to. This is how I look at it. I break it into hierarchies. I want you to know that the managers that work here make more than you, and it’s not by an insignificant amount. You want to eventually get to that level. How much? They don’t know. It’s not public information, but it’s more. It deserves to be more because they have the tactical skill to do, not only your job, but to manage it in a big way. That’s how I tried to set it up in a very positive. The people that tippy top does insanely well. I’ll skip sales and come back to that in a second.If you start thinking about things you should be doing versus what you are doing, that's unhealthy. It's probably time to look for a change. Click To Tweet
The admin staff is the departments that aren’t sales. People know there’s a hierarchy and that with more responsibility and proficiency comes higher opportunity. Things are more challenging, going to stress you, make you work a little harder, or make you grow. That’s part of it. There’s a comp that goes along with that. That is in every single department.
In the sales department, if you look at sales, I’ve got two different distinct divisions inside of sales. There are two different roles, comp plans, and everything, but every single person knows they are paid a salary and a percentage of the deals they close. The entry-level sales position is the team to be the higher level sales position because it pays more. That is not a secret. Everybody knows it, but you can’t get one without the other. Is it perfect? Of course not. Do we have turnover? Yes.
By and large, we survey people. People are very happy. They’re chasing and excited about the process. There is none of this BS where things are going to change over time. It gets better in their favor the longer they’re here, and the better they produce. What it does long-term is it gives people something they want to continue to lean into, chase, and go after.
Pt’s healthy. People in the admin side, like my bookkeeping department, have no desire to make what a salesperson makes or give up some of their base salaries because they want to chase a bonus. Ian and I have talked about that before. These are things that are absolutely in place. The exact numbers, nobody knows it, but the ranges, the amounts, and about is absolutely something that is pretty public.
When you talk about staff, it takes salespeople out. Everyone knows what salespeople are making because you know they’re on the same comp plan and everything is so transparent with sales numbers. Any salesperson in any company could quickly do the math on how much everyone made last year. When you take staff, some things I’ve seen companies do well. Take Quicken Mortgage. It has hundreds of thousands of people doing the same thing in hundreds of different titles. Everyone’s doing the same thing, like Processor 1, 2, and 3.
What are you doing? You’re collecting documents. You’re making a risky decision. They got Loan Officer 1 and 2. They got all these hierarchies within the same position. Let’s say you had a loan processor. There’s a wide range. Maybe let’s say it’s $40,000 to $75,000. Sometimes, someone is making $72,000. That’s not that great because you had to recruit them away from a company and that was the only way to get them into the company.
If you don’t have that level, the only promotion is processing supervisor. That’s the next level for me. A lot of people don’t want to be a supervisor. They get into supervisor roles to make money, and they suck because it annoys them every time someone asks them a question. They’re not good with people. If you’re a bigger company, having different bands that are in the same position, but it’s more seniority and merit-based. You earned your way, “Congratulations. You’re now a Processor 1, 2, 3,” which is not unlike the way the military does things.
You get the different ranks and move your way up with time, tenure, good performance, and good reviews. I like that way about going with the inside staff, but something interesting. These experimenters tried to come up with solutions. What’s the solution? Let me say this. People know what everyone makes. I had a manager, and God bless her. I loved her to death. I worked with her forever. She worked for me forever, but she used to tell people that talking about your salary was grounds for termination.
Whenever she’d say it, I’d cringe a little bit because it sounded from a different era, like the ‘50s or ‘60s. I’d always be like, “Is that even legal to fire someone for talking about their pay?” She would always say to everyone like, “That’s grounds for termination talking about your salary.” I always thought it was funny because, from my first job, I knew what everyone negotiated in the technical sales leadership program out of college.
We all talked about it. We all went out and drank, and I was like, “Damn, I’m a loser. I didn’t negotiate as much as out in Ohio.” We all knew, and I knew what the salespeople made. Everyone knew what everyone made. If you’re a manager and think people don’t know what they make as peers, you’re being clueless. These people go out and have beers together. They talk about these things. For me, I think they’re going to find out. What’s interesting is the experimenters asked them, “Would you like more transparency? Would you like to know more about what all of your peers are saying?” It was 90-some percent were like, “Yes, I want to know.”
Follow-up question, would you be willing to have your name posted with your exact salary and the increase you get every year? That flipped it. 90-some percent said, “Absolutely not.” It’s fascinating because people say they want transparency if it serves them. If it could make everyone in the office get jealous and pissed at them, what else does that do?
Michael Jordan didn’t mind being the highest-paid guy in basketball because the dude knew he was the best basketball player in the world. It wasn’t going to impact anything. There was no one saying Jordan was overpaid because they knew he was good. The reason people don’t want their name listed, Frankie, is that it puts pressure on you. That’s like A-Rod going to the Yankees and making that huge contract. All of a sudden, sucking, the pressure was ramped up from how much he was getting paid.
I went back and looked at something with A-Rod. It’s fascinating. He didn’t even turn it on the home run derby or the All-Star game. When I was a kid, you watched every inning. The funny thing about A-Rod and Jeter is Jeter was always top five and adored for a few reasons. He was never number one in salary. He lived in New York and had plenty of endorsements. Not woe for Jeter. He did fine, but he was always slightly below A-Rod. There was an interview I read with him. He’s aggregated in salary. If you add them up, he was higher than the top five. He was top 1 or 2, but he never was the highest per year intentionally because of the fact that he didn’t want the spotlight.
No one ever talked about Jeter or his money. They talked about him for other reasons, but no one ever talked about his money because he stayed under the radar a little bit.
He’s always the third highest-paid guy. They don’t talk about it, plus he won a ton. It’s like Jordan. There are strategic ways to do these things. You can have a big old target on your back or do it in a way where you’re a little bit more modest, and it’s intentional. If you know anything about those two people, A-Rod or Jeter, it fits their personalities. It’s how they live. It’s a fascinating dichotomy. I’m pretty sure A-Rod won the MVP, if not once, twice while he was with the Yankees. He was there for almost ten years. Out of his entire career, he played the Yankees longer than anybody else, which it’s fascinating. What do you think of that whole thing was a disaster because they only won one championship with him, but he was good.
That championship, he was outrageously good and carried that team to that championship. He mashed that ball at that time. He did have a few lousy years for them too. What this comes down to, Frank is not a question about pay as much. Let’s assume everyone knows what everyone makes in the company. Let’s not be the old dumb-ass managers who think no one is talking. They’re not allowed to, and people know more than you think always. It’s like your kids know more than you think. Your team knows more than you think. Let’s assume everyone knows everything. This is what’s important. Do you have a meritocracy? People get pissed in a meritocracy means exactly what it says, merit.People know what everyone makes. People always know more than they think. Click To Tweet
Are people paid on merit? Are people promoted on merit? If there are 10 people doing the same job and the highest paid person is the 7th best at it, you’re going to have problems. People are going to get pissed. They’re going to look for other jobs. Where this starts to happen is, let’s say you have 10 people, and they’re all making $50,000 a year. You are short-staffed and looking for more to make $50,000.
Your fourth best person comes to you and says, “I got a job offer for $60,000.” You say, “I’ll match it.” That person’s paid $60,000, but 1, 2, and 3 didn’t get a raise. If 1, 2, and 3 found out that person was making 20% more than them, even though they produce more, you have big problems. The answer is, if things are that well for your business, do you take care of your top three because it’s coming or say, “We’re going to take you all and lose number four.”
You have to think about 1 of those 2 because giving the 4th best person significantly more money than 1, 2, and 3 because they shoved a letter in your face is going to come back to hurt you because 1, 2, and 3 will find out. One of them will find out what happened at some point, and they will tell the other two, “Did you know this?” Oftentimes, it’s better to say, “We can’t match that,” or I got to go take care of all four of these folks if that’s the actual market. If they got a one-off offer that has nothing to do with your market, great, but that $10,000 might be telling you that you’re paying too low in the first place.
Instead of talking about meritocracy, I want to talk about something else. You and I may have a disagreement on this, but that’s fine. I don’t disagree with anything you said about meritocracy, but there was a poll I cited fairly regularly. The reasons that people quit are boss, job fit, stunted growth, pay, or underappreciated. The caveat is this. Ian and I both had shitty bosses, but we made a bunch of money, so we stayed.
At the same time, when we thought we were underpaid grossly to market, we left. If we were close to what we thought the market was or what we could make elsewhere, we would stay. To Ian’s point above, if you’re not paying the market, you’re going to have a problem. People are going to flee. This happened with Ian at NVR. There were many times when I was like, “We’re focused on paperwork and not getting on it. We’re not going to push comp as hard. Plus, your comp plan is not as aggressive as Bank of America.” They went and became loan officers there. That’s real.
It got to be real, but it apples to apples. If people are paid at or about where they should be paid comparatively to market, they don’t leave, number one, for pay. They leave because of the boss, a job fit, stunted growth, or underappreciation. That fits very well into what we’re talking about. You need to understand pay and ranges. I want to suffice it and say this, “It’s not all about comp.”
If you make a shitload of money, millions and millions of dollars, like on Wall Street, you put up with things that are fairly inhumane, and you do it. There are tons of stories about this, and you do it because it’s an obscene amount of money. For most normal people, normal jobs it’s the other stuff. I bring it up this way. As long as people have a fair wage, it isn’t the only thing that excites them. We’re contemplating doing a pretty big contest around here. We’re going to get on a plane and go somewhere.
I’ve been in business for fourteen years. I’ve never done anything like that. Everybody on the sales side is excited about it. It helps drive them. They’re going to make tons of money if they achieve the contest. What they all can think about is, “I’m going to have four days on a beach in Florida in January.” That’s a big deal.
It comes down to these things where the pay is important, but so too are some of the bennies that go with the pay as long as the pay is right. What we’re trying to show you here, there are motivators. It’s motivating to know your boss makes more. It’s demotivating to know you make less than a peer, but if everything is pretty close, you can also use non-financial benefits to help move the needle. It matters to people more than they’ll tell you money does.
It’s only demotivating if you make less than a peer if you know you are significantly better than them. If you produce significantly more and are much more tenured, that can piss you off than someone that came in and is making more money than you. That’s where you have to pay close attention to that. If I were going to give advice to myself as a young manager about things I didn’t think enough about, oftentimes, when you’re recruiting, you need more people, you interview someone, and they test great with everyone. Everyone loves them. All you can think about is get them. What do we get to pay? You get into a competitive bidding war maybe with a competitor too, and you get them. You do that without thinking about the seven peers that are already in your company.
They’re kicking ass for you. When you do that in a vacuum, you risk pissing everyone off that’s on your team. You have to think hard. It is going to get out what we paid this new person. Either they are as good as we thought they were, come in, is Michael Jordan, and score more than everyone else. They deserved it. If they’re not, we have to think hard about the other people on this team who are going to find out because you could end up losing someone who’s better than the person you recruited.
There’s something else in this that I think we’ve skirted around and haven’t talked about it specifically, but it’s worth bringing up. I’ll tell two very quick stories. When I was a project manager, which was an entry-level point in my career, I managed this community. It was a D community. It was like in the DC-Metro market. It was a big deal. I got moved there and made a huge deal about it. This guy who I loved was a great guy. He was a dipshit when it came to work and he had a deck fall off a house. It’s not good. That’s bad.
When you’re a builder, you pay the bill, and you have a deck literally with people on it fall off the house. This guy gets demotivated. He gets demoted immediately. How does he cope? He takes three days off and goes golfing. He flip-flopped communities with me. They put him in the community that I was supposed to run. I got to go deal with this train wreck like a fallen off deck and all of these things. I was pissed, and this guy ended up winning project manager of the year months later in my community that I was promised. There’s a but to it.
The but is this. My manager told me, “Frank, I need you to do this for me. It’s going to benefit you later in your career as you move up. You’ll understand it more, but I need you to suck it up and deal with this.” The shine was way off of that moment. 8, 12, 15 months later, when I’m still grinding here and this guy’s getting all the accolades, but I moved. When I was in sales, something similar happened. There’s this lovable guy. I played football with him. He was a fucking space cadet. He went to the airport in the summer, and he left the chicken he bought at Kroger in his backseat, not in the cooler.
His car had maggots in it. It was the most disgusting thing I’d ever heard. This is a true story. This guy was in a candy shop that’s right around the street from Potomac Mills. It was a townhouse community that sold like crazy many years ago, houses flying out of there. I was in this dog do community with overpriced posted stamp lots, but it was the same thing.
I was asked, “I need you to go in here and help me with this community because it’s failing. I need it not to fail,” but I was rewarded later. It was one of these things where I was willing to take it twice because I knew that for the greater good, the company, and myself, I could move through it and see bigger things. It’s the reason that I was a DM 6 or 7 years out of college, but that all changed when that comp plan changed.The reasons why people quit are because of the boss, job fit, stunted growth, pay, or underappreciation. Click To Tweet
It’s good what Frank’s saying too. I’m a fan of, “You got to pay the market and if the person’s good, you should pay above market.” All of these studies are great, but they’re not asking people who were paid under market. People that are paid under market and know it will leave if they feel like you’re taking advantage of them. What I also say is I love something about this with Frank is his manager was able to paint something bigger for him. I can remember one time I received a big award at GE, a top sales award. It was a big deal. It’s an award I wanted. I worked my ass off for this. I got this award in front of all my peers, 110 sales reps in a department where I had been a trainee three years before.
It was a big deal to me. It’s meant a lot to me. This is back when sales meetings were sales meetings. We’d been booze and pretty hard. I’d come back, and all my boys are at the table. They’re high-fiving me and giving me bro hugs. We’re drinking cocktails, and the rest of the meetings are going on. Out of the blue, they’re like, “Young kid like you must be making a fortune. They must be paying you well.” At the time, I wasn’t even on commission. GE had been getting away with it because of the way the trainee program worked. I wasn’t making as much as them to the point where I was making half of what all these guys were making.
I found it out that night. Not only did I find it out that night, but they were also laughing their asses off. They’re like, “We don’t get paid with glass trophies like you, Ian. We get paid with actual cash, which is why we don’t live in a crappy apartment near Wrigley.” They were ripping me like it was brutal. I remember being pissed. I went to my boss the next day, and he looked at me.
He didn’t panic and was like, “Where do you think those guys are going to be in five years in their career? Those are lifer sales reps. Ian, do you want to be a lifer sales rep? Because if you do, let’s work on getting your salary up to there and figure it out, or do you want to stay on the same path that you’re on, which is being all of their bosses within a year or being their boss’s boss in two years?”
He laid it all out and was like, “What do you think I make in comparison to those guys? What do you think my boss Jim makes in comparison to those guys? That’s your track. Don’t get distracted with glitter and gold. If you want their track, let’s sit down, we’ll work it out, and you can be a career, life, or sales rep calling on the same steel mills twenty years from now. You’ll be paid well to do it. If not, shut up and keep doing what you’re doing. You’re on a track that’s so much higher.” He was right. I never talked to him about it again. I went about my business knowing I was paid less than the lifers and didn’t give it what they said. Truthfully, the next year at the annual meeting, I was their manager.
These are our ways of telling you this entire episode has an asterisk. If there’s a bigger mission at play, the pay is something that you have to focus on less if there’s a trajectory with which you’re chasing. Ian and I both chased that trajectory. We’re working on something else about anxiety. I don’t have a ton of anxiety because we’ve accomplished a ton because we were able to go through this system and this process. The takeaway and the summary of this episode is there can be motivating and demotivating times with salary.
If you’re a manager, you need to understand both. As an employee, striver, chaser, or someone who wants to grow, you need to understand when to allow one to push you and compel you forward and know when it might be time for a change. Ian and I have both lived through all of those aspects of this entire continuum inside of salary and knowing about it.
I still think I deserve a raise, Frank. I do way more than you. I feel like, if anything, Let Me Speak To A Manager is not a meritocracy. For those of you that I’ve introduced that word to, if you take a cold, hard look at this episode and the value you get from me versus Frank, I bet you would be shocked to learn that I do not make more money than him. That is the absolute summary. This is a great microcosm of the rest of the working world.The pay is something that you have to focus on less if there's a trajectory with which you're chasing. Click To Tweet
Ian, you know where you’re going with this thing.
My trajectory is higher than Frank’s. One day, I’m going to be at iHeartMedia or something like that. If you are new to this show, please subscribe. If you like our show and thought this episode would help somebody, please share it with them. If you are a long-time reader and have not given us a five-star review on Apple, shame on you. Frankie, it’s good seeing you.
I do believe you deserve a raise, and over your current salary, we’re going to go with percentages. I believe you get a 50% raise over $0. It’s a big race.
I’m going to lose 50% more money on this show in 2023. Fantastic. I’m excited.
- Harvard Business Review – How Much Does Your Boss Make? The Effects of Salary Comparisons